BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 5901 Green Valley Circle, Room 207 Culver City, California REPORTER'S TRANSCRIPT MARCH 23, 2011 FINAL ACTIONS Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Jerome E. Horton of Equalization: Chairman 5 Michelle Steel 6 Vice-Chairwoman 7 Betty T. Yee Member 8 George Runner 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson, Chief Board Proceedings Division 14 15 16 --oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 2 1 ITEM C1a through C1e 2 Culver City, California 3 March 23, 2011 4 ---oOo--- 5 MS. OLSON: That concludes our oral hearings 6 for today. Would you like to take those matters that 7 are under submission? 8 MR. HORTON: Yes. 9 MS. OLSON: Our first item is C1a, Melody Arya 10 Husaini and Bahram Arya Husaini; C1b, Chra Fasi Cusine 11 Restaurant, Incorporated; C1c, Char Fasi Restaurant, 12 Incorporated; C1b, Bahram Arya Husaini and C1e, Melody 13 Arya Husaini. 14 MR. HORTON: Thank you. Members, is -- is 15 there a motion, Members? 16 Discussion? 17 MS. YEE: Let me make the motion, maybe open it 18 for discussion. 19 MR. HORTON: Okay. 20 MS. YEE: Move to redetermine. 21 MS. STEEL: What about OIC? 22 MR. HORTON: There's a motion to -- 23 MS. YEE: With direction to staff to work with 24 the Petitioners -- 25 MS. STEEL: I second that. 26 MS. YEE: -- on the Offer In Compromise 27 program. 28 MR. HORTON: Okay, there's a motion to 3 1 redetermine with the qualification for staff to work 2 with the taxpayer. Second by Ms. Steel. 3 Objection, Members? 4 Hearing none, such will be the order. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 ITEMC2 2 MS. OLSON: The next item is C2, Jack Nadel, 3 Incorporated. 4 MR. HORTON: Members? 5 MS. YEE: I'll move to redetermine. 6 MR. HORTON: It's been moved to redetermine by 7 Ms. Yee. Second by -- 8 MS. YEE: Oh, actually, hang on. This -- this 9 is the one -- 10 MR. HORTON: Strike that. 11 MS. YEE: This is the one that had the amnesty 12 penalty related to the self-help refund, is that the 13 one? 14 MR. HORTON: Yes. 15 MS. YEE: Okay, which has already been -- 16 MR. HORTON: It's already been abated. 17 MS. YEE: All right. 18 MR. RUNNER: Is there a balance of that amnesty 19 that is still in here, though? 20 MS. YEE: Yes, the -- for the underreported 21 sales part. 22 MS. YEE: Under -- 23 MR. RUNNER: Okay. 24 MR. HORTON: Motion, Members? 25 MS. YEE: Move the Appeals staff 26 recommendation. 27 MR. HORTON: It's so moved. Is there a second? 28 MS. MANDEL: Second. 5 1 MR. HORTON: Okay. Moved by Ms. Yee, second by 2 Ms. Mandel. 3 Objection, Members? 4 MS. STEEL: Objection. 5 MS. YEE: Objection. Ms. Olson, please call 6 the roll. 7 MS. OLSON: Mr. Horton. 8 MR. HORTON: Aye. 9 MS. OLSON: Ms. Steel. 10 MS. STEEL: No. 11 MS. OLSON: Mr. Runner. 12 MR. RUNNER: No. 13 MS. OLSON: Ms. Yee. 14 MS. YEE: Aye. 15 MS. OLSON: Ms. Mandel. 16 MS. MANDEL: Aye. 17 MS. OLSON: Motion carries. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 6 1 ITEM C3. 2 MS. OLSON: Our next item is C3, Tom Young 3 Chung. 4 MR. HORTON: Is there a motion, Members? 5 MS. STEEL: Move to grant. 6 MR. RUNNER: Second. 7 MR. HORTON: It's been moved to grant by Ms. 8 Steel, second by Mr. Runner. 9 Discussion, Members? 10 MS. YEE: Oh, boy. I have objection, but I'm 11 not sure -- let me think about this for a second. 12 MS. STEEL: This is the one that Department 13 said that lack of detailed record but the quarterly 14 report, the printout report from the cash register 15 matches that daily sales -- sales of computer input, so 16 I believe that they made the right -- they filed the 17 right amount and there is -- I thought there were enough 18 record to show that they didn't -- on the report for 19 sales of gasoline. 20 MS. YEE: Yeah, I appreciated the provision of 21 additional documentation today although I'm still 22 troubled by how the significant markdown could have been 23 made up, and even looking at I guess his income tax 24 returns I'm not sure that we had the full picture with 25 respect to other income that could have made up for that 26 difference. So there's still some gaps in there for me. 27 MS. STEEL: But we had the record of the -- 28 actually pulled out money from the house because try to 7 1 keep that -- keep that gas station during the 2 construction happened and didn't have any choice but 3 lower the price. And then after that that try to build 4 the car wash on the top of it and try to make the best 5 out of it from that store. 6 So you cannot really compare -- department 7 cannot really compare those prices, that what they are 8 selling selling price with average from the -- what 9 government provided. So I don't think that was really 10 fair, and then they brought the pictures of showing that 11 since that car wash has been built that their business 12 is going up. But only one-year period that after they 13 built the car wash try to make sure that they going to 14 have maximize sales of car wash. So that's why the gas 15 price was lower. 16 So, I totally believe that -- you know, 17 taxpayer for this case. 18 MR. HORTON: All right. Ms. Mandel. 19 MS. MANDEL: Yeah, they're saying the Federal 20 income tax returns were showing that there was an 21 operation at a loss. Was that -- those materials put in 22 earlier in the proceedings? 23 MR. LEVINE: I don't know. 24 MS. MANDEL: Yeah, they say has provided, which 25 suggests that they were put in earlier in the 26 proceedings. 27 MR. HORTON: Members, there -- there -- in my 28 mind there were a couple extenuating circumstances that 8 1 would have caused the taxpayer to use the gasoline as a 2 loss leader at a -- at certain times in -- during the 3 audit period. One, during the time that there was major 4 construction going on. There's some logic in the loss 5 leader. My -- my concern is that was not quantified as 6 far as period in time by the Department, but the amount. 7 But in the absence of the taxpayer quantifying 8 it for us there's very little we can do but rely on the 9 information that's here and available. 10 The other time that he conceivably could have 11 used the loss leader was with operation or setup of 12 the -- of the car wash, which made -- you know, which 13 makes some sense to have something that attracts the 14 customers in as a loss leader. But not to the extent 15 that -- that it's that extreme. 16 The capital investment is a norm for businesses 17 to take out a loan to make a capital investment over and 18 above their current cash flow, if you will. That's 19 consistent with normal practice, would not be indicative 20 in my mind of a loss or a gain in sales. It's just an 21 activity that you do in order to expand your operation 22 or in this case build a car wash. 23 And therein is the challenge, is that it's 24 difficult to defend the taxpayer the -- when the 25 information is not provided for us to make a decision 26 contrary to the facts that are before us. 27 MS. MANDEL: I did find the reference in the D 28 & R to the income tax returns. And that D & R is saying 9 1 that the Department examined the Federal returns for 2 '05, '6 and '7 showing a net profit in each year, 33 -- 3 almost 34,000, almost 41,000 and almost 80,000 net 4 profit from the business. 5 That's the reference. 6 MS. YEE: Uh-huh. 7 MR. HORTON: Further discussion, Members? 8 Hearing none, Ms. Olson, please call the roll. 9 MS. OLSON: Mr. Horton 10 MR. HORTON: No. 11 MS. OLSON: Ms. Steel. 12 MS. STEEL: Aye. 13 MS. OLSON: Mr. Runner. 14 MR. RUNNER: Aye. 15 MS. OLSON: Ms. Yee. 16 MS. YEE: No. 17 MS. OLSON: Ms. Mandel. 18 MS. MANDEL: No. 19 MS. OLSON: Motion fails. 20 MR. HORTON: Subsequent motion, Members? 21 MR. RUNNER: As far as the -- the other items 22 on here, the -- what we can -- what we have flexibil -- 23 what we can do, the negligence penalty is an issue we 24 could -- in light of the -- kind of the circumstance 25 that's something that we could remove? 26 MR. LEVINE: If you find that he wasn't 27 negligent, yes. 28 MR. HORTON: Mr. Runner, is that a motion -- 10 1 MR. RUNNER: I would make that as a motion -- 2 MR. HORTON: -- to sustain -- 3 MR. RUNNER: -- to remove the -- the negligence 4 penalty. 5 MR. HORTON: Is that all encompassed or just 6 item by item or -- so is the motion to sustain with the 7 removal of the negligence penalty? 8 MR. RUNNER: Yes. 9 MR. HORTON: Okay. So noted. Is there a 10 second? 11 Hearing none, dies for lack of a second. 12 Is there a motion, Members? 13 MS. YEE: Move the Appeals staff 14 recommendation. 15 MR. HORTON: So moved by Ms. Yee. Is there a 16 second? 17 I second it. 18 Ms. Olson, please call the roll. 19 MS. OLSON: Mr. Horton. 20 MR. HORTON: Aye. 21 MS. OLSON: Ms. Steel. 22 MS. STEEL: No. 23 MS. OLSON: Mr. Runner. 24 MR. RUNNER: No. 25 MS. OLSON: Ms. Yee. 26 MS. YEE: Aye. 27 MS. OLSON: Ms. Mandel. 28 MS. MANDEL: Aye. 11 1 MS. OLSON: Motion carries. 2 MR. HORTON: Okay. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 1 ITEM C4. 2 MS. OLSON: Our next item is P4, Marwa Ahmad 3 Harb. 4 MR. HORTON: Is there a motion, Members? 5 MS. YEE: Move to redetermine. 6 MR. HORTON: Ms. Yee moves to redetermine. 7 Second -- is there a a second? 8 MS. MANDEL: Second. 9 MR. HORTON: Second by Ms. Mandel. 10 Discussion, Members? 11 MS. STEEL: Objection. 12 MR. HORTON: Objection noted. 13 Further discussion, Members? 14 Hearing none, Ms. Olson, please call the roll. 15 MS. OLSON: Mr. Horton. 16 MR. HORTON: Aye. 17 MS. OLSON: Ms. Steel. 18 MS. STEEL: No 19 MS. OLSON: Mr. Runner. 20 MR. RUNNER: No. 21 MS. OLSON: Ms. Yee. 22 MS. YEE: Aye. 23 MS. OLSON: Ms. Mandel. 24 MS. MANDEL: Aye. 25 MS. OLSON: Motion carries. 26 ---oOo--- 27 28 13 1 ITEM C5. 2 MS. OLSON: Our next item is C5, Earth-N-Ware, 3 Incorporated. 4 MS. STEEL: Can we do this for 30-30-30? I 5 don't know why -- 6 MS. MANDEL: Yeah. 7 MS. STEEL: -- I wrote it down, but at the same 8 time can we ask Department to call -- find out B and T 9 Services, try to contact? 10 MR. HORTON: Sure. 11 MS. OLSON: Mr. Levine. You note it -- okay. 12 It's been moved to -- by Ms. Steel, second by 13 Ms. Mandel, 30-30-30 with instructions to staff to 14 follow through on B and T contracts. 15 Objection, Members? 16 Without objection, such will be the order. 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 14 1 ITEM C6. 2 MS. OLSON: Our next item is C6, Wareforce 3 Corporation. 4 MR. HORTON: Motion, Members? 5 MS. YEE: Move to redetermine. 6 MR. HORTON: It's been moved by Ms. Yee to 7 redetermine, second by -- 8 MS. MANDEL: Second. 9 MR. HORTON: -- Ms. Mandel. 10 Discussion, Members? 11 MS. STEEL: I thought we can give 30-30-30 and 12 have -- taxpayer helped to make segregation of 13 different -- because they were complaining about that. 14 MR. LEVINE: They may be able to help -- say -- 15 I don't think they can but maybe they think they can. 16 The -- 17 MS. STEEL: For the interest company. 18 MR. LEVINE: The Department wouldn't -- 19 willingly they'll do whatever you tell them but they 20 wouldn't voluntarily do that. Appeals would not have 21 told them to because the -- we think that the taxpayer 22 was misunderstanding the requirement of the consistency 23 element. You have to have strata based on common 24 interest, and the common interest can be money. 25 And to pull out -- they were also, for example, 26 confused about insurance, that -- they were talking 27 about Use Tax. It's the other way around, it was only 28 Sales Tax that was being picked up in this test. If it 15 1 was Use Tax it would have been exempt. 2 So it was not diverse on that basis. And like 3 anything, there's no way to be certain that if they 4 actually could provide that information and the 5 Department did it that the deficiency wouldn't go up if 6 they had -- 7 MS. YEE: Okay. 8 MR. LEVINE: -- a high percentage of errors 9 in -- we don't know. Those could have been the only two 10 insurance errors and they could have been the tip of the 11 iceberg. 12 MS. STEEL: Okay. 13 MR. HORTON: Okay. 14 MS. STEEL: Because Petitioner said that they 15 can provide another 34 insurance deals, so -- 16 MR. LEVINE: They can provide the 17 information -- if I understood correctly, they can 18 provide -- they can identify who they believe are all 19 the insurance companies. The Department wasn't so sure 20 and I don't know what the basis is. 21 What I gather from the Department's comment is 22 the way the taxpayer would do it would be based on 23 insurance being in the name. The taxpayer indicated 24 they know their customer. So -- 25 MR. HORTON: Yeah. 26 MR. LEVINE: But -- but then we have the 27 problem of can they show where the product was delivered 28 from, and that's where we kind of lose a thread because 16 1 even if we have identified all the insurance companies 2 and you tell the Department go do it on an actual basis, 3 it sounds like the best they can do is say we delivered 4 this one from out of state so we can take that out, but 5 we don't know about those. We had those drop-shipped. 6 Well, where were they drop-shipped from? 7 Well, we ordered it from New York. But we 8 don't know if the New York company didn't order it from 9 someone else to be drop-shipped. They have to track it 10 all the way back to the actual drop-shipper. 11 MR. HORTON: Yeah. Members, there were a total 12 of 32 errors in -- in a statistical sample. The errors 13 don't go away. And so statistically to go back and 14 open it up you're just going to find more errors, even 15 though you may reduce the base somehow. And 16 particularly in the three stratas, one of the stratas 17 was on the actual basis and the percentage of errors was 18 consistent with the other two stratas which were based 19 on a monetary number. So -- 20 MS. STEEL: Where did you get 32? I got 18. 21 Let's move on. 22 MR. HORTON: From -- from the Department. 23 MS. STEEL: Let's -- 24 MR. HORTON: Actually, from my memory but I -- 25 MS. STEEL: Department found that. 26 MR. HORTON: -- I think it's correct, though. 27 MS. STEEL: Okay. 28 MR. HORTON: I'll -- 17 1 MS. STEEL: Okay. 2 MR. HORTON: So, it's been moved and second. 3 Any -- any further discussion, Members? 4 Hearing none, any objections? 5 Without -- without objection, such will be the 6 order. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 1 ITEM C7. 2 MS. OLSON: Our next item is C7, Li Fang Ye. 3 MS. MANDEL: Did -- did we get a statement on 4 the finality penalty -- penalty? 5 MR. LEVINE: I'm sorry, yes, we did. We -- the 6 Department believes that it should be relieved. We 7 agree subject to the usual payment conditions, payment 8 of the tax within 30 days if you uphold the tax. 9 If -- if you uphold the responsibility. If you 10 don't uphold the responsibility I suggest -- 11 MS. MANDEL: It goes away anyway. 12 MR. LEVINE: -- you don't deal with the 13 finality penalty -- 14 MS. MANDEL: Okay. 15 MR. LEVINE: -- because that deals -- that goes 16 to the benefit of the corporation. 17 MS. MANDEL: Okay. 18 MR. HORTON: Okay. 19 MS. MANDEL: And the -- and the -- the normal 20 thing also includes the installment paid plan within 30 21 days if it's paid out in 13 months -- 22 MR. LEVINE: That's -- that's only for -- 23 MS. MANDEL: -- is that part of the normal one? 24 MR. LEVINE: -- amnesty. 25 MS. MANDEL: That's only for amnesty, okay. 26 MR. LEVINE: We do the finality penalty to try 27 and track -- 28 MS. MANDEL: Oh, that's right. That's right. 19 1 I got it. 2 MR. LEVINE: -- what happens with the regular 3 petitioner. 4 MS. MANDEL: I got it, okay. Thanks. 5 MR. HORTON: Your pleasure, Members? Is there 6 a motion? 7 MS. STEEL: Grant the petition. 8 MR. RUNNER: Second. 9 MR. HORTON: It's been moved by Ms. Steel to 10 grant the petition, second by Mr. Runner. 11 Discussion, Members? 12 MS. YEE: Objection. 13 MR. HORTON: Objection. 14 Further discussion, Members? 15 Hearing none, Ms. Olson, please call the roll. 16 MS. OLSON: Mr. Horton 17 MR. HORTON: No. 18 MS. OLSON: Ms. Steel. 19 MS. STEEL: Aye. 20 MS. OLSON: Mr. Runner. 21 MR. RUNNER: Aye. 22 MS. OLSON: Ms. Yee. 23 MS. YEE: No. 24 MS. OLSON: Ms. Mandel. 25 MS. MANDEL: No. 26 MS. OLSON: Motion fails. 27 MR. HORTON: Subsequent motion, Members? 28 MS. MANDEL: To move to redetermine but to 20 1 relieve the finality penalty under those usual 2 conditions. 3 MS. YEE: I'll second that motion. 4 MR. HORTON: Okay. It's been moved by -- 5 MS. STEEL: Objection. 6 MR. HORTON: -- Ms. Mandel, second by Ms. Yee. 7 Objection by Ms. Steel. 8 Further discussion, Members? 9 Hearing none, Ms. Olson, please call the roll. 10 MS. OLSON: Mr. Horton. 11 MR. HORTON: Horton aye. I did it again. 12 MS. STEEL: (inaudible). 13 MS. OLSON: Ms. -- 14 MS. STEEL: No. 15 MS. OLSON: Ms. Steel. 16 MS. STEEL: No. 17 MS. OLSON: Mr. Runner. 18 MR. HORTON: I didn't get you, though. 19 MR. RUNNER: No. 20 MS. OLSON: Ms. Yee. 21 MS. YEE: Aye. 22 MS. OLSON: Ms. Mandel. 23 MS. MANDEL: Aye. 24 MR. HORTON: Ms. Olson. 25 MS. OLSON: Motion carries. 26 ---oOo--- 27 28 21 1 ITEM C8. 2 MS. OLSON: Our next item is C8, Eritech 3 International, Incorporated. 4 MR. HORTON: Motion, Members? 5 MS. YEE: Move to redetermine. 6 MR. HORTON: It's been moved to redetermine by 7 Ms. Yee. Second by -- 8 MS. MANDEL: Second. 9 MR. LEVINE: I'm sorry -- 10 MS. STEEL: How about -- 11 MR. LEVINE: -- this is the one that the 12 taxpayer wanted to submit more stuff. The taxpayer has 13 talked to the Department -- taxpayer's rep. They are 14 willing to try and provide what -- the Department 15 explained what they wanted. Taxpayer is willing to try 16 and provide -- it's a -- he's an outside CPA so he can't 17 get right to it, and the Department thinks it should be 18 a reaudit, anyway. 19 MS. YEE: Okay. 20 MR. LEVINE: So that's our recommendation -- 21 MS. YEE: All right. 22 MR. LEVINE: -- that you send it back -- 23 MR. HORTON: Very -- 24 MR. LEVINE: -- for a reaudit. 25 MR. HORTON: -- very helpful. 26 MS. YEE: All right. 27 MR. HORTON: I mean the -- the challenge we 28 face was, is that we kept trying to solicit that but -- 22 1 MS. YEE: Right. 2 MR. HORTON: -- it just wasn't coming. 3 MR. LEVINE: Maybe -- it sounded when I talked 4 to him him that he was concerned that he couldn't come 5 up with it right now because he has other tax problems 6 to take care of. 7 MR. HORTON: Thank you, Mr. Levine. 8 MR. LEVINE: So as long as we do the reaudit 9 and give the Department time to do it hopefully maybe we 10 can get a more accurate -- 11 MR. HORTON: We appreciate -- 12 MR. LEVINE: -- a result everyone can be happy 13 with. 14 MR. HORTON: We appreciate the extra effort. 15 Subsequent motion, Members? 16 MS. STEEL: 30-30-30. 17 MR. HORTON: Moved by Ms. -- well -- 18 MR. LEVINE: Can -- 19 MR. HORTON: -- not a 30-30-30. 20 MR. LEVINE: We're -- 21 MS. STEEL: We can do it -- 22 MR. LEVINE: We're asking that it be -- that 23 you send it back for reaudit and then -- 24 MS. STEEL: Reaudit. 25 MR. LEVINE: -- that basically takes the time 26 limit off because the Department is going to go in and 27 actually put hands on and it will take a while, usually. 28 MS. STEEL: Okay, so reaudit. 23 1 MR. HORTON: Okay. 2 MR. LEVINE: But we bring it back to -- 3 MR. HORTON: So moved by Ms. Steel, second by 4 Ms. -- 5 MS. YEE: I'll second -- 6 MR. HORTON: -- Yee. 7 MS. YEE: -- yeah. 8 MR. HORTON: Without objection, Members, such 9 will be the order. 10 ---oOo--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 1 ITEM C9. 2 MS. OLSON: Our next item is C9a, Jill Jan, and 3 C9b, Deborah S. Weber. 4 MS. YEE: Can we bifurcate these petitions? 5 MR. HORTON: It's been asked to bifurcate 6 the --- the petitions. 7 MS. STEEL: Oh. 8 MR. RUNNER: We have both 9a and 9b, right? 9 MS. YEE: Right. 10 MS. STEEL: Right. 11 MS. YEE: But I'd like to take them up 12 separately. 13 MR. HORTON: Okay. Let's -- Members, let's 14 take up 9a. 15 MS. STEEL: Let's do 9b first. 16 MR. HORTON: Okay, let's do 9b first them. 17 MS. STEEL: Because I want to ask Mr. Levine 18 that -- you know, all these -- 19 MR. HORTON: I think it's rolling your way, Ms. 20 Steel. 21 MS. STEEL: -- personal liability cases that 22 even Ms. Jan -- I mean I'm just going by the book. I 23 love to relieve everybody but, you know, just going by 24 the book, Mr. Weber signed the checks during that audit 25 period. We go back to the other case, she didn't sign 26 anything except the one purchaser agreement. 27 So, I mean love to waive this person because 28 that's what that responsible person asking to do it. 25 1 Where is our -- where we draw the line here? I mean, 2 you know, I -- I get totally confused with it. 3 MR. LEVINE: This is a really difficult statute 4 to enforce. It's difficult all the way down the line. 5 Difficult for taxpayers, difficult for us to get right. 6 The view that we've taken is that the -- if 7 the -- even if they're responsible so they're sub -- 8 they're within the ballpark, they're subject to 9 liability. When we look at the willfulness element, if 10 they can't pay it without authority, if they just 11 cannot -- have no authority within the corporate 12 structure to pay it on their own that we wouldn't regard 13 them as willful. 14 So I would say if you believe what Ms. Jan 15 says, that she had to approve everything and that 16 Ms. Weber could not make any payment without her 17 permission -- if that were true then Ms. Weber would not 18 be willful in her failure to pay because she couldn't do 19 it. 20 MS. STEEL: And we have to be consistent here. 21 MR. LEVINE: We -- we have a -- a corollary to 22 that is the person -- if they're really responsible has 23 to make an effort to -- to get the taxes paid, so they 24 can't just ignore it and hope -- and rely on the 25 authority provision. But as long as they done it and 26 asked and -- and it's been declined we don't any 27 longer take the position that you have to pay it or 28 quit -- 26 1 MS. YEE: Okay. 2 MR. LEVINE: -- to avoid liability. 3 MS. STEEL: So grant the petition for -- 4 MR. RUNNER: Move to grant. 5 MS YEE: Is this on 9b? 6 MR. HORTON: 9b. 7 MS. STEEL: 9b. 8 MR. RUNNER: 9b. 9 MR. HORTON: Okay, it's been moved by Mr. 10 Runner to grant, second by Ms. Steel. 11 Discussion, Members? 12 Without objection, such will be the order. 13 9a. 14 MR. RUNNER: I would move to grant the petition 15 based on the issue that it seemed to me that truly that 16 would have been a -- a debt that could have been taken 17 out if the timing was a bit different in regards to the 18 bankruptcy. At least as -- that we went through the 19 dates, so I would move to grant the petition. 20 MS. STEEL: I second. 21 MR. HORTON: It's been moved to grant the 22 petition by Mr. Runner, second by Ms. Steel. 23 MS. YEE: Objection. 24 MR. HORTON: Objection by Ms. Yee. 25 Discussion, Members? 26 MS. YEE: I think the bankruptcy aside, there 27 was still a conscious decision made by this Petitioner 28 about directing the sales tax reimbursements to the -- 27 1 MS. MANDEL: Somewhere else. 2 MS. YEE: Yeah, somewhere else. To a 3 controlled bank account. There was a conscious decision 4 made to do that. 5 So, I think there was willfulness there. 6 MS. MANDEL: Yeah. And as -- as -- as to -- as 7 to bankruptcy, if it -- if it had come out in a 8 different fashion and was in fact discharged that's a 9 Bankruptcy Court issue. But it didn't come out in 10 advance, so I'm not going to grant it based on it could 11 have come out but didn't come out. 12 MR. HORTON: Yeah, Members, my concern reality 13 is reality. I mean we can't change timing, 14 unfortunately. 15 With that said, Ms. Olson, please call the 16 roll. 17 MS. OLSON: Mr. Horton. 18 MR. HORTON: No. 19 MS. OLSON: Ms. Steel. 20 MS. STEEL: Aye 21 MS. OLSON: Mr. Runner. 22 MR. RUNNER: Aye. 23 MS. OLSON: Ms. Yee. 24 MS. YEE: No. 25 MS. OLSON: Ms. Mandel. 26 MS. MANDEL: No. 27 MS. OLSON: Motion fails. 28 MR. HORTON: Subsequent motion, Members. 28 1 MS. YEE: Move to redetermine. 2 MR. HORTON: It's been moved to redetermine by 3 Ms. Yee, second by Ms. Mandel. 4 Objection -- 5 MS. STEEL: Objection. 6 MR. HORTON: -- Members? 7 MS. STEEL: Yes. 8 MR. HORTON: Ms. Olson, please call the roll. 9 MS. OLSON: Mr. Horton. 10 MR. HORTON: Horton Aye. 11 MS. OLSON: Ms. -- Ms. Steel. 12 MS. STEEL: No. 13 MS. OLSON: Mr. Runner. 14 MS. STEEL: Make it very clear here. 15 MR. RUNNER: No. 16 MS. OLSON: Mr. Runner no. Ms. Yee. 17 MS. YEE: Aye. 18 MS. OLSON: Ms. Mandel. 19 MS. MANDEL: Aye. 20 MS. OLSON: Motion carries. 21 MR. HORTON: Thank you. 22 ---oOo--- 23 24 25 26 27 28 29 1 ITEM C11. 2 MS. OLSON: Our next item is 11a, 7 Bay Truck 3 Station and 11b, Aris -- 4 MS. STEEL: Can we ask Department to reaudit 5 for this case, for -- it seems like this taxpayer was 6 very much sure that -- that discount that -- I mean that 7 store made has to be discounted from our tax assessment. 8 So, we -- 9 MS. YEE: I guess to the extent the discounts 10 weren't reflected anywhere, what would -- what would we 11 use as our basis, I guess? 12 MR. LEVINE: Well, I think they have the 13 records and -- and the Department -- the question is 14 whether the taxpayer consist -- can insist that the 15 Department do this on an actual basis. 16 It wasn't a hundred percent -- I don't think 17 the Department was a hundred percent certain if the 18 records were available, but the taxpayer is a hundred 19 percent certain and the Department -- it didn't sound 20 like the Department would be surprised if all the 21 records are there. But they did a test of one month and 22 I didn't hear Petitioner complain about the test for the 23 month, which resulted in an overall discount of a little 24 under three percent, which is -- was thoroughly 25 discussed was -- was applied to all purchases so -- or 26 all sales, so -- so it balances out. That's how the 27 Department took the -- the discounts for the total 28 period divided by the total sales and took a number that 30 1 it can apply to all sales to capture that discount. 2 He wants it done differently. And so if the 3 Board wants it done on an actual basis then certainly 4 the -- the Department can go out and see if the records 5 are really there and do it on an actual basis. 6 MR. HORTON: Members, this is a -- another case 7 where I think if we go back out it may very well not 8 necessarily make -- work out in the taxpayer's favor. 9 The premise of the argument is flawed and so 10 the Department established a seven percent something -- 11 let's say 7.5 markup and provided a 2 point 12 something -- let's say 2.5 adjustment. That's a 30 13 percent adjustment. 14 So overall, not incrementally, not transaction 15 by transaction, that's a 30 percent overall adjustment 16 relative to the markup and the percentages. 17 MS. STEEL: Was it 30 percent from the regular 18 price or just from the markup -- 19 MR. HORTON: It's a 30 percent -- 20 MS. STEEL: -- gave discount? 21 MR. HORTON: 30 percent on the markup, but if 22 you -- if you were to consider the price the percentage 23 would shift and it would still reflect the same 24 proportionate ratio. So the proportion would still be 25 the same. 26 That's my only -- I mean if -- if -- 27 MR. RUNNER: From what I was hearing -- 28 MR. HORTON: And if the taxpayer had asked for 31 1 that -- 2 MS. STEEL: We audit -- 3 MR. HORTON: -- or at least provided some 4 documentation that would have allowed us to consider the 5 facts as he saw them, then we may have been able to make 6 that determination. But based purely on the numbers the 7 numbers say to me that the Department has been 8 considerate in their adjustment for discounted selling 9 prices. 10 MS. STEEL: Can I just -- Mr. Lambert, is that 11 2 point what percent from the markup or from the total 12 price of -- that what they were selling? Because that 13 cannot come to 30 percent if it's the selling price. 14 MR. LAMBERT: Scott Lambert with the Sales and 15 Use Tax Department. The -- the 2 -- the 2.85 was on the 16 selling price, was the -- was -- 17 MS. STEEL: From the selling price -- 18 MR. LAMBERT: Yes. 19 MS. STEEL: -- not from the markup only? 20 MR. LAMBERT: Well, yeah, not from the markup 21 only. It was -- 22 MS. STEEL: So it cannot be -- 23 MR. LAMBERT: -- 2 -- it was of the total -- 24 MS. STEEL: -- 30 percent that. 25 MR. LAMBERT: -- of the total sale. 26 MS. STEEL: Right. 27 MR. LAMBERT: It was 2.85. You know, in this 28 particular case -- 32 1 MR. HORTON: Well, in that case I -- 2 MR. LAMBERT: -- it was more than -- 3 MR. HORTON: -- withdraw my statement then 4 because it turns out to be -- 5 MS. STEEL: But -- 6 MR. HORTON: Go ahead, I don't want to put 7 words in your mouth. 8 MR. LAMBERT: Well, you know -- and I don't 9 want to give additional testimony, but -- 10 MR. LEVINE: No, you don't. 11 MR. LAMBERT: I -- I wont. Well, I'm not -- 12 MR. LEVINE: The taxpayer is not here so you 13 should only answer the Department and Board Members' 14 questions. 15 MR. LAMBERT: Yeah. Okay. 16 MS. STEEL: So, can we just give 30-30-30 to 17 Department to go out just to check that, that discount 18 that this taxpayer was looking for or we -- so, right 19 now that we gave enough discount for 2.8 percent or 20 right now it seems like the taxpayer was asking more 21 discount on the top of what they got. So, that's the 22 issue, right? 23 MR. HORTON: Let me -- 24 MS. STEEL: You can answer that. I mean -- 25 MR. LAMBERT: Yeah. 26 MS. STEEL: -- Mr. Lambert. 27 MR. LAMBERT: Well, Mr. Levine knows. He's 28 already got me once today. 33 1 MR. HORTON: Jump in whenever you want, Mr. 2 Levine. Keep us -- but, yes, go ahead and answer. 3 MR. LAMBERT: Yeah, the -- it's on the -- 4 the -- I'm sorry, the -- it's been a long day. The -- 5 actually, I lost my train of thought. Can you give me 6 the question one more time? Or did you -- 7 MS. STEEL: Let me tell you just one thing, 8 this taxpayer asked us to go out, ask that how much was 9 profit, you know, net profit. 10 MR. LAMBERT: Oh. 11 MS. STEEL: Nobody is going to answer us 12 because they know we work for BOE, why they give us all 13 those answers. So that was really interesting, that 14 direction that we got from the taxpayer. I just want to 15 know that the issue here is taxpayer want to -- wants to 16 have more than 2.8 percent of the discount that we 17 already gave, so write down issue is that he deserves 18 more than 2.8 percent. 19 It seems like he has all the documents there 20 that we don't. So -- 21 MR. LAMBERT: Well, to answer that question I 22 believe you're correct that he wants more because if you 23 have the sales figures, right, and you want a lower 24 figure than what we've given on the discount you would 25 have to have more discount, right? 26 I mean, so in effect you've got to be arguing 27 that. But really the bottom line of why he wanted that 28 is because when he did his -- when he did his analysis 34 1 from the cost that's -- that's where he said everything 2 was wrong. He didn't have a problem with the sales 3 figure; he didn't have a problem with the way the 4 discount was calculated; he had a problem when he did 5 his overall analysis he just said this can't be right. 6 That's -- that's basically what his position was. 7 MR. HORTON: Quick -- 8 MS. STEEL: Okay. 9 MR. HORTON: -- quick question. 10 MS. STEEL: I'm withdrawing my motion, so -- 11 MR. RUNNER: What was the motion? Oh, okay, 12 it's withdrawn. 13 MS. STEEL: What was my motion? I don't 14 remember then. I was -- 15 MR. HORTON: 30-30-30. 16 MR. RUNNER: Can I ask a quick -- 17 MR. HORTON: Mr. Runner. 18 MR. RUNNER: Yeah, just real quick. 19 Again, going back to this issue, I think the dif -- he 20 was talking about discounts of 5 and 20 -- or, excuse 21 me, 15, 20 and 25 cents, not percentages, as I recall. 22 He was talking about cents. 23 MR. LAMBERT: He was talking about cents. 24 MR. RUNNER: Cents. 25 MR. LAMBERT: Right. 26 MR. RUNNER: And what you were dealing with is 27 trying to come up with an overall discount -- 28 MR. HORTON: His was selling price. 35 1 MR. RUNNER: -- which was -- which was percent. 2 MR. LAMBERT: Originally. 3 MR. RUNNER: Correct? 4 MR. LAMBERT: Uh-huh. 5 MR. RUNNER: So 28 -- 2.8 percent is about ten 6 cents or so. 7 MR. HORTON: Which is right. 8 MR. LAMBERT: On average. 9 MR. RUNNER: On an average. 10 MR. LAMBERT: Right. 11 MR. RUNNER: But you were doing it on the total 12 sales. 13 MR. LAMBERT: That's right. 14 MR. RUNNER: He was applying the discount just 15 on the -- on that -- on that -- whatever portion he was 16 discounting, right? I mean, he wasn't discounting 17 everybody at -- 18 MR. LAMBERT: Oh, the -- 19 MR. RUNNER: -- 15, 20, 25 percent? 20 MR. LAMBERT: Well, that's exactly right. 21 MR. RUNNER: Okay. 22 MR. LAMBERT: Yeah. 23 MR. RUNNER: Okay. Thank you. 24 MR. HORTON: Okay. We're -- we're good? All 25 right. 26 Is there a motion, Members? 27 I would move to adopt staff recommendations. 28 MS. YEE: I'll second. 36 1 MS. STEEL: Objection. 2 MR. HORTON: Discussion? 3 MS. STEEL: We already discussed it. 4 MR. HORTON: Oh. All right. 5 Further objection, Members? 6 Hearing none, Ms. Olson, please call the roll. 7 MS. OLSON: Mr. Horton. 8 MS. STEEL: Just say aye. 9 MR. HORTON: Aye. 10 MS. STEEL: Okay. 11 MS. OLSON: Ms. Steel. 12 MS. STEEL: No. 13 MS. OLSON: Mr. Runner. 14 MR. RUNNER: Aye. 15 MS. OLSON: Ms. Yee. 16 MS. YEE: Aye. 17 MS. OLSON: Ms. Mandel. 18 MS. MANDEL: Aye. 19 MS. OLSON: Motion carries. 20 That concludes our business for today. 21 MR. HORTON: Thank you to the Board. The 22 meeting is hereby adjourned. 23 MS. OLSON: The Board will recess and 24 reconvene -- 25 MS. STEEL: Recessed, my apologies, hereby 26 recessed until tomorrow morning. 27 ---oOo--- 28 37 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 March 23, 2011 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding 37 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: March 30, 2011. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 38